A dilemma for supermarkets trying to carve out a niche in cosmetics with lipsticks is how much is too much?
Lipsticks sales are driven by the hottest colors, shades and new formulations. The dilemma evolves when food retailers must determine how many glosses, sticks, whips and tubes, in colors from creamy coconut to crushed cranberry, are needed in order to create a successful cosmetics department.
Retailers polled by SN said supermarkets are at a cosmetics crossroads, and are in the process of drawing the fine line between carrying a solid variety of products and overloading shelves with superfluous items.
So the question looms, is the cost of the large amount of product needed to fill a lipstick section justified by the overall profit it yields?
"That's the $1 million question. I think as with any subcategory it's the 80-20 rule. Eighty percent of your profit comes from 20% of the products," said Bill Roatch, cosmetics buyer for Raley's in Sacramento, Calif. "The question is, how much of the 80% can you afford to eliminate" without the risk of losing stature in cosmetics.
"Ask the cosmetics franchisers and they say it'll hurt. Ask the retailers, and they'll say you can cut some," Roatch added.
Some buyers are coming up with what they feel is a successful formula for lipstick sales, despite the fact that many issues that linger over the category have never before been tackled.
Supermarkets "have to carry at least the basic stock in line, maybe not large quantities. But they should have a promotional space to show new items," suggested Laura Barton, HBC buyer for Dolton Acme Foods, a service merchandiser based in St. Louis. "Maybe a counter display or above the fragrance counter. Something just to show they are interested."
Harvey Rosenthal, owner of Golden State Service Co., a service merchandiser in Van Nuys, Calif., said: "Supermarkets can cut down on the number of products. As long as they have a good selection of merchandise, they can cut back as much as 20%."
He further commented, "Supermarkets should stock whatever's in style, plus the basics. The fringe [items] are the ones they need to eliminate."
Rosenthal said food retailers can "absolutely" drop lipstick stockkeeping units and still be seen as a cosmetics destination.
But while Barton agreed most lipstick business is dominated by a handful of basic SKUs, she said she still feels as though consumers want to see a wide variety of products on the shelves.
"Ladies would like to see a lot of products out there, but they still tend to stick with the ones that they know and trust," she explained.
And scaling back too far in lipsticks could be disastrous, one buyer warned.
"Variety is paramount," said a buyer from a Southeastern chain who wished to remain anonymous. "It is the key. If you try to pick the three best colors, you'll end up getting three customers."
In the past several years, however, advanced technology has provided food retailers with more accurate data on their cosmetics sales. This has freed them from relying entirely on manufacturer data to determine which products are selling the best, and which products they will put on their shelves.
"Retailers are at a crossroads. Definitely the upgrading of point-of-sale information has brought the numbers to the forefront. It has allowed retailers to figure out exactly which SKUs are selling and which aren't," said Roatch. "Variety is a key. But how large [a variety] is the issue. There are quite a few shades that don't generate any sales at all."
"Somewhere along the line POS data will play a role as to how big the category is, and not just in lipsticks, but all cosmetics," he added. "The evolution of POS data compared to how it was done in the past has really empowered retailers."
Indeed, cosmetics manufacturers are no longer the market gurus, dictating their sales wisdom to eager retailers. The age of the enlightened retailer has arrived -- sort of -- said retailers.
Supermarkets "can get along without the [manufacturers], but the manufacturer input is still important," said Rosenthal. "In the past, the manufacturers pretty-much dictated what went in as far as colors. The jobbers and retailers can still come up with their own answers, but I do think they need some sort of help."
Barton said while retailers are more in control of the lipsticks they put on their shelves, this does not prevent manufacturers from heavily pushing their new products.
"We have a lot of vendors that come out with new SKUs every year, but our stores really don't want to pick them up. For the amount of paperwork we have to do in getting the new SKUs into our system, I don't think it generates the movement that it should," she said.
But one service merchandiser from a Hawaiian chain said his company still leaves major decisions on which products to carry up to the manufacturer. So while technology allows retailers more control over product choice, not all of them are ready or willing to take it.
Regardless of who makes the decisions on which lipsticks hit the shelves, the margins on these products are hot ones for health and beauty care sections.
The service merchandiser from Hawaii said the chains he supplies get 40% to 50% margins on lipstick products.
"It varies, but I think the retailer makes at least 40%," Rosenthal concurred.
Barton placed lipstick margins "between 45% and 50%" and Roatch said Raley's lipstick margins are "usually in the range of 35% to 40%."
With margins like these, lipsticks seem lucrative enough for most food retailers to pursue in earnest. But one difficulty in marketing these products is public perception that cosmetics should be purchased in a department store or a drug store -- not at a supermarket.
"Average consumers believe the supermarket is going to charge them a higher price [for lipstick]. And they're not going to get as much of their money's worth," said Barton, who feels a savvy advertising program is the best way for retailers to combat this perception. "But more people are aware supermarkets carry cosmetics."
Barton also feels supermarkets cannot rely on low-end products to carry lipsticks and cosmetics.
She said: "Higher-end products move better [in food stores]. Definitely. If the customers are looking for value, they're going to go to the mass merchandiser because that's where they'll pay a lower price. If they pick it up at a supermarket, the product is something they know and trust. I don't think it's as much impulse."
But many polled by SN, even those who supported cutting back lipstick and cosmetic SKUs, said they still felt offering variety in the cosmetics section was the real key to success.
"The best way [to have a food store perceived as a cosmetics destination] is to have a neat, well-merchandised, department, preferably in the front of the store," said Rosenthal.
"Have the product available when the customer needs it. That's the best thing we can do. If they buy it from me they don't need to go to an alternate format," said the Southeastern buyer. "Convenience is not going to carry you through."
Roatch said for a food retailer to successfully carry lipsticks, it must portray itself as a "super-combo store" rather than a strict food store.
"But I wouldn't necessarily say it's difficult to compete [against mass merchandisers]," Roatch added. "No particular store is dominating. Every retailer is trying to find their niche. Whether it is in service, selection or even layout."